Employee’s release resolving state court action barred FCA action

A federal district court in Kentucky found that a release executed by a former employee following the resolution of a state court civil action barred the former employee from joining in a qui tam False Claims Act federal action against his former employer. The court also dismissed the qui tam action because, although the complaint described a scheme to provide unnecessary and unauthorized medical transportation services, it did not describe with particularity how that scheme resulted in the submission of false claims to the government (U.S. ex rel. Stipe v. Powell County Fiscal Court, June 21, 2018, Caldwell, K.).

Alleged fraudulent billing. Powell County Fiscal Court (PCFC) provided ambulance services in Kentucky and participated in Medicare. In December 2016 a former employee initiated a qui tam action under the FCA against PCFC, but removed himself as a relator after returning to work at PCFC. In May 2017, the federal government formally declined to intervene.

Another former PCFC employee, who joined in the original qui tam suit, alleged that PCFC provided medically unnecessary ambulance transportation. She also claimed that PCFC employees provided advanced life support transport to patients when it was medically unnecessary, which resulted in overcharges to Medicare. The complaint also alleged that PCFC billed Medicare for non-reimbursable ambulance transportation by employing ineligible personnel, and by not employing a medical director for ambulance services as required by law. The complaint asserted that PCFC knowingly presented, or caused to be presented, fraudulent claims for ambulance transport that were not reimbursable and that PCFC knowingly made, used, or caused to be made or used false records or statements, specifically reports, physician certification statements, and other requests for reimbursement. At this stage in the case, a third former PCFC employee wished to join in the suit.

Previous release barred joinder. The court denied the third former employee’s motion to join. The employee had previously settled a law suit he had filed against PCFC in state court, and following settlement, executed a release of all claims he might have had against PCFC. The court noted that pre-filing releases bar qui tam claims if the release can be fairly interpreted to include qui tam claims, and public policy does not outweigh enforcement of the release.

The court found that the release encompassed the qui tam FCA claim because the former employee possessed an enforceable interest in the FCA claim which he could have pursued in state or federal court at the time he signed the release. Additionally, public policy favored enforcement of the release because the government was aware of the fraud allegations. The qui tam action was initiated in 2016, and the government formally declined intervention in May 2017. Consequently, the government knew about the fraud allegations before the release was signed and well before the joinder motion was filed.

Case dismissed for lack of particularity. The court granted PCFC’s motion to dismiss because the complaint did not identify any actual false claims for payment that were submitted to the government. Instead, it described instances where PCFC engaged in fraudulent behavior and assumed that false claims must have been submitted as a result. Although the complaint described a scheme to employ improperly credentialed EMTs, failure to employ a medical director, and providing unnecessary advanced life support services, it did not describe with particularity how that scheme resulted in the submission of false claims.

The court also rejected the employee’s argument that even though she did not identify specific instances of fraudulent billing, she demonstrated that she had personal knowledge of a scheme to defraud the federal government. She was employed as an EMT, and did not allege that her job involved any work related to billing or knowledge of billing practices.

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